Taking a bite out of India s growing organic market
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1 Taking a bite out of India s growing organic market A food revolution is under way and demand for organics is soaring in the US and Europe uncommon sense
2 02 OC&C Taking a bite out of India s growing organic market
3 An organic craze has swept the Western world in the past decade. A similar phenomenon is quietly brewing in India. Domestic demand for organic produce is expected to hit the one-billion mark by 2019 and there is considerable (unquantified) latent demand. But a number of barriers need to be removed, to make India a market truly ripe for the picking. The country s fast-expanding middle class is willing to pay a premium for a healthy lifestyle 27% CAGR 36% CAGR It s almost impossible to walk down a supermarket aisle these days without seeing all-natural or organic labels on just about every type of product. From the US to Europe, more and more people are willing to pay that bit extra for foods that are grown without synthetic chemicals or additives Exports Domestic Exports Domestic FY11 FY15 ( ) In the UK last year, the organic food market grew by 4.9%, while the US market value has rocketed from $1 billion to $80 billion over the past 25 years. The figures speak for themselves. Organic food s not big business; it s huge. And India has noticed, rapidly expanding its exports of organic produce to all major global markets. But it s India s domestic consumption that s turning heads now with demand growing at 36% every year. India is, of course, intrinsically agrarian; rich cow manure is widely available and there are vast tracts of naturally organic land just waiting to be cultivated. In addition, the country s fast-expanding middle class is willing to seek out and pay a premium for a healthy lifestyle. So, what s the problem for producers? While many of the ingredients required to drive India s organic market are there, a few key challenges remain particularly when it comes to delivering enough quantities from farm to fork. Below, we ve identified five key steps which, if taken, will help propel India s organic market into the next phase of growth. OC&C Taking a bite out of India s growing organic market 03
4 04 OC&C Taking a bite out of India s growing organic market
5 1. ORGANISE SUPPLY Players right across India s organics industry need to work together to improve supply and productivity. For organic farming to be sustainable, both customers and corporates need more security of supply. While the country is a large exporter of organic foods, production remains relatively limited to items such as tea and pulses. Organic varieties of items like fruits and vegetables are virtually unavailable. Why? Farmers grow multiple crops on the same land to reduce risk, and this in turn creates erratic supply. The solution? Create mechanisms for better corporatefarmer engagement and encourage higher government investments in the sector. This will go a long way towards creating a more diverse, reliable offering of organic foods. In addition, higher premiums on certified organic goods are needed to incentivise Indian farmers to transform their land. Organic farmers have to contend with three years of lower output while their farm is certified and during this time their yields are reduced by 10-15%. The price margin therefore needs to be adjusted to reflect this. OC&C Taking a bite out of India s growing organic market 05
6 2. BUILD TRUST Consumers like to get what they pay for. But, given the extra cost associated with going organic, it s even more important that people feel confident that what they re buying is the real deal. What India s organic industry needs is clear labelling and certification. Adopting a credible, consistent, and easily-identifiable certification system will go a long way towards helping shoppers to spot what is (and what s not) organic when they re browsing the supermarket shelves. 3. TAP INTO E-COMMERCE Placing organic products on shelves in India is expensive. Operations on the country s small-scale organic farms are very labour-intensive, and then there s the extra costs for processing and storage. Supermarkets add another 30-40% of margins. With that in mind, it starts to make sense why consumers have to pay as much as 70% more for organic foods, or even 300% for some goods like honey. So, what s the best way to offset these costs? Get online and sell directly to customers. Currently supermarkets still reign supreme they account for 45% of organic food sales. But the online route is quickly gaining traction, with over 25 companies currently in the market, including Zopnow, Bigbasket and Peppertap. Online is clearly catching on; so much so the segment is tipped to grow by 25-30% every year. 4. PLAN YOUR BRAND Organic companies must establish a strong brand and carefully plan marketing and communication strategies. Marketing campaigns should position organics as environmentally friendly, healthy and as an independent or alternative source. As organic isn t easily differentiated by taste, the better for you proposition has to be the key message. 5. FIND AN ALLY Unlike in the US, where FMCG giants have consolidated the organic market through a chain of acquisitions, the market in India is completely fragmented, with no clear leader. This presents a clear opportunity to create an industry leader either by investing in a single player with a good brand or in a few regional players to create a national footprint. When it comes to creating strategic partnerships, companies should look out for third parties with strong regional or brand associations which are held back financially. Even if only a few of these barriers can be removed, India s organic market looks ripe to surge ahead. For organic farming to be sustainable, both customers and corporates need more certainty of supply 06 OC&C Taking a bite out of India s growing organic market
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